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Since the onset of the COVID-19 pandemic, day trading has become increasingly popular. Now that people are heading back to work, no one has the time to make day trading investments.
Luckily, there is a way to trade daily without sitting at your computer and refreshing the market. You can use algo trading to forgo time-consuming manual trades.
Keep reading to learn more about algo trading.
What Is Algo Trading?
Algo trading, or algorithmic trading, is a trading method that uses an algorithm to make buying and selling decisions.
There are different components of an algo trading strategy. They include the following:
- Strategy Engine
- Brokers Platform
Let’s go into detail about what each of these components means.
A strategy engine refers to software or apps that allow you to build an algorithm. You’ll use your knowledge of trading to create an algorithm.
Some examples of trading software where you can build an algorithm are Meta Trader, Python, Amibroker, and Ninja Trader.
To execute the orders from your built-in strategy engine, you need a bridge. A bridge is what connects the strategy engine to the broker’s platform.
Keep in mind that a broker’s platform handles the algorithmic trading and won’t always be the same platform as the strategy engine.
For example, if you choose to map out your strategy in Excel, you’ll need different software to perform trades.
Each broker has its own way of handling algorithmic trading. Some brokers charge for algorithmic trading and others don’t. The paid versions are going to be more advanced and high-end than the free versions.
The broker will take the strategies from the strategy engine or the bridge to perform trades in real-time. You can learn how to find an algo trading infrastructure and other beginner tips online. Check it out now.
Benefits of Algo Trading
Trading algorithms are preferred by investors for a variety of reasons. The main benefit of this type of trading is that you don’t have to put a lot of effort into it.
No emotions are involved in the process so you don’t have to worry about greed or fear taking over.
You control your algorithm by implementing the following:
- Position Sizing
- Maximum Loss
- Profit Target
These factors are used on a consistent basis to create your algorithm and help you with your trading discipline.
If you trade in your free time, this is a great trading technique. You don’t have to sit in front of your device at all times. Plus, algo trading is much quicker than manual execution so you can trade options that move fast.
Understanding Algo Trading
Algo trading has many benefits for new and seasoned investors. If you use this guide to understand how algorithmic trading works, you’ll have a better chance of being successful.
Create an algorithm through a strategy engine and connect the strategy with a bridge to reach the broker’s platform. With these three components, you’ll be able to take advantage of real-time automated trading.
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